Myriad Genetics, Inc. 10-Q Summary
Business Context and Reporting Period
Myriad Genetics is a genetic testing and precision medicine company operating as one reporting segment across Hereditary Cancer, Tumor Profiling, Prenatal, and Pharmacogenomics products. This Form 10-Q covers the quarter and nine months ended September 30, 2023, filed November 7, 2023. Results are unaudited and prepared under U.S. GAAP.
Management reported strong testing-volume growth, led by Hereditary Cancer, Prenatal, and Pharmacogenomics. Third-quarter testing volumes increased 40% year over year, or 18% excluding the acquired SneakPeek product.
Financial Results and Key Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Testing revenue | $191.9 million | $156.4 million | $556.6 million | $500.6 million |
| Revenue growth | 22.7% | — | 11.2% | — |
| Cost of testing revenue | $57.6 million | $50.4 million | $174.6 million | $148.1 million |
| Gross margin | 70.0% | 67.8% | 68.6% | 70.4% |
| Operating loss | $(60.1) million | $(45.0) million | $(226.0) million | $(88.4) million |
| Operating margin | (31.3%) | (28.8%) | (40.6%) | (17.7%) |
| Net loss | $(61.3) million | $(35.1) million | $(232.1) million | $(69.7) million |
| Net loss per share | $(0.75) | $(0.43) | $(2.84) | $(0.87) |
Third-quarter revenue included Hereditary Cancer of $86.5 million, Prenatal of $39.5 million, Pharmacogenomics of $35.7 million, and Tumor Profiling of $30.2 million. Prenatal revenue included $5.0 million from SneakPeek. Nine-month revenue included $15.6 million from SneakPeek.
- Q3 selling, general and administrative expense was $136.1 million, or 70.9% of revenue, versus $130.5 million, or 83.4%, in the prior-year quarter.
- Q3 research and development expense was $24.0 million, or 12.5% of revenue; nine-month expense was $67.7 million.
- Q3 included $34.3 million of legal charges pending settlement. Nine-month legal charges were $111.8 million.
- Net loss was affected by limited tax benefits: tax expense was $0.1 million in Q3 and $2.2 million for the nine-month period, compared with tax benefits of $9.1 million and $18.8 million, respectively, in 2022.
Cash Flow, Liquidity, Debt and Balance Sheet
- Cash, cash equivalents and marketable securities totaled $86.3 million at September 30, 2023, down from $169.7 million at December 31, 2022. Cash and cash equivalents were $76.0 million; restricted cash was $9.0 million.
- Cash used in operating activities was $56.2 million for the first nine months, compared with $99.0 million used in the prior-year period.
- Investing activities provided $43.9 million, primarily from $103.7 million of marketable-security maturities and sales, partially offset by $53.2 million of capital expenditures and $6.6 million of capitalized internal-use software costs.
- Financing activities provided $31.0 million, including $40.0 million borrowed under the new asset-based revolving credit facility.
- The ABL Facility had $40.0 million outstanding and $48.5 million of availability at September 30. The borrowing rate was 7.67%, and the facility was subject to minimum liquidity of $60.0 million and minimum availability of $25.0 million before specified financial-covenant thresholds are met.
- On October 31, 2023, after quarter-end, the maximum ABL commitment increased by $25.0 million to $115.0 million.
- Total assets were $1.149 billion and stockholders’ equity was $683.4 million at September 30. Accrued liabilities increased to $157.6 million, primarily reflecting legal settlement accruals.
Material Changes Versus Prior Comparable Period
- Revenue increased $35.5 million, or 23%, in Q3 and $56.0 million, or 11%, for the nine-month period, primarily from higher testing volumes.
- Average revenue per test declined in several product areas, including Hereditary Cancer and Pharmacogenomics, partially offsetting volume growth.
- Q3 gross margin improved to 70.0% from 67.8%, but nine-month gross margin declined to 68.6% from 70.4% due to higher compensation and testing costs.
- Net loss widened materially because of legal settlement accruals, higher compensation and operating costs, and the absence of the prior-year tax benefit.
- Legal charges pending settlement increased expenses by $111.8 million for the nine months. The company accrued $57.5 million for the securities class-action settlement and $34.0 million for the Ravgen patent settlement.
- Management ceased use of its former Salt Lake City headquarters and transitioned operations to a new west Salt Lake City facility, resulting in $5.7 million of accelerated depreciation during the nine months. The company remains liable for rent until a subtenant or replacement tenant is found.
- The Gateway acquisition contributed $5.0 million of Q3 revenue and $15.6 million of nine-month revenue, but generated a $1.5 million nine-month loss.
Guidance, Outlook, Commentary and Risks
The filing does not provide a clear quantitative full-year revenue or earnings guidance range. Management expects existing cash, expected operating cash flow, and available ABL borrowings to fund anticipated requirements for at least the next 12 months, but cautions that litigation payments, capital expenditures, operating losses, and weaker-than-expected cash generation could reduce liquidity more rapidly.
Management’s strategy emphasizes organic growth in Oncology, Women’s Health, and Pharmacogenomics; new commercial models; expanded products such as Foresight; new products such as FirstGene; technology-enabled sales tools; laboratory automation; and new laboratory facilities.
- The securities class-action settlement requires at least $20.0 million in cash and up to $57.5 million in additional cash or common stock, subject to court approval. The company had deposited the initial $20.0 million and accrued the remaining $57.5 million at September 30.
- The Ravgen settlement requires at least $12.75 million in installments and potentially an additional $21.25 million contingent payment beginning no earlier than 2026.
- Key risks include reimbursement reductions, payor recoupments, pricing pressure, competition, inability to achieve profitability, regulatory changes affecting laboratory-developed tests, FDA oversight of GeneSight and other tests, patent litigation, cybersecurity, foreign exchange, inflation, facility-transition costs, and compliance with ABL covenants.
- The FDA proposed in October 2023 to phase out enforcement discretion for many laboratory-developed tests. The potential financial and operational impact remains uncertain.
- Medicare represented 12% of Q3 and nine-month revenue. One payor represented 13% of accounts receivable at September 30.
- Disclosure controls were assessed as effective, and the filing reports no material changes to internal control over financial reporting.
Facts Investors Should Verify
- Final court approval and settlement funding method for the $77.5 million securities class-action settlement, including any potential share issuance and dilution.
- Payment timing and ultimate exposure under the Ravgen settlement, including the contingent $21.25 million obligation.
- Compliance with the ABL Facility’s $60.0 million minimum-liquidity and $25.0 million minimum-availability requirements, borrowing-base availability, and interest costs.
- Whether testing-volume growth converts into sustainable revenue and margin improvement despite declining average revenue per test.
- Cash-burn trends, capital expenditures, facility obligations, and the company’s ability to achieve profitability without additional financing.
- Potential reimbursement changes, payor recoupments, FDA regulation of laboratory-developed tests, and the effect on GeneSight, Prequel, and other products.